I can’t make an investment case for a company whose losses grow as it scales. That’s why I said no to Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT). It’s why I laughed at WeWork. It’s also why I’ve never put money into Tesla (NASDAQ:TSLA).
Tesla has yet to make a full year of profit, even as revenue has grown six-fold since 2015. The market capitalization, once again ahead of General Motors (NYSE:GM), has no relation to its industry.
You can speculate on Tesla. If you called your bookie and took a flyer in May, when it was at $185 per share, you’re golden today at $345. But you would have done just as well going short last November, when it was at $350, then covering the bet in May.
But is this time different? Is it time to invest in Tesla?
The Bull Case
The key to the bull case is Tesla’s third-quarter report, with net income of $143 million, or 78 cents per share fully diluted, on revenue of $6.3 billion. Since that report came out Oct. 23, the shares are up by nearly one-third. Consumer Reports has put its “recommended” rating back on Tesla cars.
Whatever you think of its “unbreakable” windows breaking during a demonstration, the launch of Tesla’s “Cybertruck” was a master class in marketing. CEO Elon Musk, previously punished for tweeting about a takeover that didn’t happen, said 200,000 orders have already been placed.
The truck isn’t the company’s only new product. A Model Y, a low-cost SUV, will start rolling off assembly lines next year, replacing the luxury-priced Model X. SUVs are rapidly taking share from sedans in the U.S. market.
So, maybe Tesla’s solar roof can work. Maybe the Model Y can do even better than the Model 3. Maybe the Shanghai factory, now delivering cars to the Chinese market, may soon be joined by a factory in Berlin. Maybe the truck’s window cracked because the door had just been hit by a sledgehammer. Maybe the stock is headed back over its all-time highs.
The Bear Case
Notice all the maybes in the bullish case?
So do the bears.
Short-seller Jim Chanos also remains a Tesla bear, saying there are too many “ifs” in the bullish case.
Service, repair and re-sale revenue grew 68% during that third quarter but U.S. sales were down. How can you buy a stock whose sales are dropping?
The Bottom Line on Tesla Stock
Tesla has always been a young man’s company and remains so.
You can make money in Tesla. But you’re entirely dependent on capital gains. You’re always riding momentum.
Right now, that momentum seems headed higher, but it could turn on a dime. At a market cap of $60 billion, you’re back to paying 2.5 times sales in an industry where even profitable companies draw one-tenth of that valuation.
As much as speculators love Tesla today, they could hate it that much tomorrow. Many people still hate Tesla, seeing it as an exemplar of upper-class values, big brotherism and environmentalist extremism.
I root for Elon Musk and I root for Tesla, too. But the only way to play it remains to sell it high and buy it low. Right now, it’s high.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time available now at the Amazon Kindle store. Write him at email@example.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.